Asia’s broken export-led growth model will take many years to adapt, analysts and policy-makers said at the ADB meeting on Monday.
They shattered the bullish market consensus with warnings that the region faces a painful period of economic stagnation.
Kaoru Yosano, Japan’s finance minister, told the ADB board of governors on Monday: “The ADB should assist the regional member countries in rebalancing their economic structures, so that they can achieve long and sustainable economic growth supported by more balanced internal and external demand.”
Stephen Roach, Asia chairman at Morgan Stanley, told Emerging Markets in an interview: “The American consumer is in multi-year deleveraging mode. Not just for a few quarters but for a few years.
“This rebalancing does not take place over night, this is a generational shift, this has to take place now and there a lot of moving parts in this transformation.”
Singapore’s finance minister Tharman Shanmugaratnam told Emerging Markets: “The fundamental secular shift is not about a move away from exports. It is a move away from US and G3 economies as they reduce consumption to Asia and emerging markets as a whole. It does not mean a move away from exports it means a shift away of markets. China and India are growing.
“After a crisis, forms are most efficiency/cost-orientated and value-orientated and there is a shift in the global footprint after ever crisis and this is going to be different from before.”
ADB chief economist Jong-Wha Lee told Emerging Markets that more investment in social safety nets is needed, to boost domestic spending. He called for privatization of state assets in order to reduce corporate savings, and for measures to nurture a culture of private enterprise by supporting small and medium-sized enterprises.
“Asia has relied excessively on exports,” Lee said. “We need a new development strategy that channels savings into productive sectors of the economy to boost consumption.”
An excessive reliance on exports to the West due to low domestic consumption and weak exchange rates has made Asia severely vulnerable despite the relative resilience of its financial economies. Korean exports continued to decline in April, falling 19% from a year earlier, while Hong Kong, which acts as a through port for Chinese exports, recorded a 21% fall in March.
In recent weeks, China’s fiscal and monetary stimulus has fuelled optimism the region’s has enough savings and policy flexibility to drive growth until Western consumption returns. The CSI 300 index of Shenzhen and Shanghai-listed shares closed at 2,714 on Monday, up 3.5% on the day and 66% off its November low.
But there are growing fears that positive effect of fiscal stimulus by Asian governments will wear off before global demand recover that will knock regional growth.